I thought that the British system of requiring the losing litigant to pay the winner’s costs had the advantage of lowing overall legal costs. Everyone would eschew frivolous litigation out of justified fear of bearing the other side’s legal fees. For that reason alone, total legal fees as a percentage of turnover should be lower for UK companies than for their US counterparts.

But an article in the Economist (May 28, 2005 at pgs. 57-58) undercut my supposition, at least as to fees. First, since losing brings dire consequences, litigants spend more to avoid that fate. Second, plaintiffs’ lawyers since the late 1990s have been allowed to accept clients on a conditional (contingent) basis. If they win, they can claim a success fee from the losing side, amounting to a surcharge of up to 100% of their costs, which encourages them to rack up still higher charges. Finally, many victims of injury buy insurance that protects them against paying fees should they lose. Thus, they do not heed spiraling attorney’s fees.

Aside from the point that a loser-pays system favors deep-pocket litigants, it is a policy that has boomeranged in unexpected ways.

Is it the responsibility of the law department to monitor its in-house counsels’ state bar eligibility? This includes being properly admitted as well as maintaining continuing legal education (CLE) credits as may be required. Auditors of a city’s law department placed this obligation on the department, but I disagree.

I view it as the responsibility of each lawyer to keep current his or her admission to the bar. The law department properly pays dues and the costs of CLE (especially if lawyers who take CLE share the wealth), but otherwise the administrative burden is unjustified.

A study of a city Law Department (Austin, Texas) wrote that “[r]ecommended best practice advisories suggest a ratio of one management attorney for every eight to ten attorneys.” The report cites its own analysis and an article by Altman Weil. [http://www.ci.austin.tx.us/auditor at pg. 34] By that measure, an 18-to- 22 lawyer municipal law department should have only two managers with lawyer reports.

I am surprised at so wide a span of control. Perhaps in government this ratio finds support, but in corporate law departments, this ratio is too wide; spans of control extend more to four-to-six lawyers. By span of control, I mean lawyers who report to another lawyer and are evaluated and directed by that senior (managing) lawyer.

An audit report on a city’s Law Department (Austin, Texas) collected several useful performance measures for litigation group. [http://www.ci.austin.tx.us/auditor] I have slightly modified the various listings.

Number of claims received
Number of lawsuits received
Percent of cases (lawsuits and claims, which are mutually exclusive) resolved without payment
Average settlement amount per claim
Percent of claims settled (the converse is percent of claims moving into litigation)
Percent of cases resolved with favorable disposition (Rees Morrison: subjective test sometimes)
Lawsuits per litigation lawyer

Many law departments might consider keeping these metrics. Using several of them allows you to create an index.

An audit review of Austin, Texas’ Law Department conducted a client satisfaction survey. [http://www.ci.austin.tx.us/auditor] The analysis stratified the respondents into those who reported directly to the City Council and those who reported to the City Manager.

The City Attorney reports to the City Manager, and in the two measures of satisfaction – regarding timeliness and whether services meet needs – those reporting to the City Manager were more satisfied. City Council clients reported dissatisfaction on timeliness five times more likely and three times more likely on services meeting needs.

With data from 55 City Council reporting respondents and 274 City Manager reports, the conclusion is clear: the Law Department worked harder to please the clients who report to their boss.

A recently-published survey shows how employees of Austin, Texas, clients of the City’s Law Department, felt about the timeliness of the Department’s services and whether those services met their needs. [http://www.ci.austin.tx.us/auditor]. If that were all the survey showed, little would deserve note. But the survey broke clients by their frequency of legal service use: low, medium, and high.

With roughly a third of the clients in each frequency bracket, the responses showed no distinctive differences.

A report of The Fraser Institute [info@fraserinstitute.ca], “The State of Canadian Judicial Statistics: Trends in Canadian Civil Justice,” summarizes findings from a 1995 survey of about 50 Canadian inside counsel. They assembled the costs of a representative case (pg. 20; all figures Canadian dollars) with the components averaging:

$101,860 outside counsel
22,800 inside counsel on average taking 223 hours [Rees Morrison: $100/hr implied rate]
7,300 other law department costs [paralegals, secretaries, travel I assume]
9,260 outside counsel disbursements [Rees Morrison: very typical for U.S. litigation at 10%]
9,570 expert witnesses and their costs
3,770 court fees and transcripts
17,700 client management and staff “spent some 225 hours”

The report concluded the cost analysis by saying that “all of these meant that on average some 387 hours and $106,000 were spent on this representative case.”

Extrapolating from the average case load (58) and the average revenue of the survey participants’ companies (CDN $995 million), litigation amounted to 0.05% of sales. A typical U.S. figure is around 0.14% of sales (60% of total legal spending is outside counsel, of which 60% is litigation, and total legal spending is around 0.4%). It is not implausible that south of the border companies pay two or three times as much for litigation.

In 2003, the City Auditor reviewed Austin’s Law Department [http://www.ci.austin.tx.us/auditor]. The Auditor’s 73-page report showed law department budgets – nationwide averages, Texas city averages, and Austin – per resident. The number of residents serves as the normalizing denominator, in the same way that revenue normalizes law department budgets of for-profit corporations.

Normalizing means that large and small participants can be compared to each other, because the common, primary metric – here, municipal law department budget – is divided by a common denominator – here, residents. Since the metrics correlate – the larger the budget the more residents – the resulting ratios stand every participant on the same scale. Lawyers per billion dollars of revenue describes another common, normalized ratio.

For political geographies such as states, provinces, counties, and cities, the fundamental normalizer should be residents.

“The State of Canadian Judicial Statistics: Trends in Canadian Civil Justice,” by The Fraser Institute [info@fraserinstitute.ca] presents results of a 1995 survey from about 50 members of the Canadian Corporate Counsel Association.

The respondents handled an average of 58 lawsuits each year during the previous five years. “Most (38) of these cases were about contract law, while 14 percent involved labour or employment issues. Personal injury, product law, and tax matters were the subject of, respectively, 11, 8, and 5 percent of reported cases. Parties to the case were other companies in 46 percent of all cases…”

The survey found that “final disposition took 39 months on average although, if the case went to trial [15% did] it took 47 months.”

Data for benchmarking in-house performance rarely appears, so I include this trove. Law departments in the U.S. would probably nod in agreement with these statistics, and find them useful to compare to their own performance.

Clients deserve to understand the value produce by their in-house lawyers. What if lawyers, as a group, reduce value?

Richard Epstein’s Simple Rules for a Complex World (1995) describes a bell-shaped curve representing the supply of law and lawyers plotted against their economic contribution. Epstein argues that the United States has passed the peak, perhaps by as much as 40 percent, and that there currently exist "too many lawyers, too much law." As a result, the law has come to distort economic incentives, producing unintended harmful consequences. Texas Law Professor Stephen Magee estimated in a Wall Street Journal piece that each additional lawyer in the United States reduces the level of GDP by $2.5 million. Both of these items came from “The State of Canadian Judicial Statistics: Trends in Canadian Civil Justice” (pgs. 22 and 23).